AGIC chief on the lookout for partnerships

If
Suncorp
and
Insurance Australia Group
were looking for someone to blame for the assault by foreign insurers on the local market, it would be Michael Weston.

The chief executive of Auto & General Insurance Company (AGIC) was the first offshore insurer to test the dominance of the majors by launching the brand a decade ago, in a move that has since lured a handful of overseas companies including Progressive and Real Insurance to the local market in search of high returns.

Mr Weston says the presence of challenger brands is the reason premium rises in car insurance, where foreign players are active, have fallen short of substantial increases in the cost of home and contents insurance.

“We’re keeping a lid on what the big guys can do in the motor space by keeping price rises from going up as quickly as the majors would like," Mr Weston says.

“It’s because we have such a small footprint in the home insurance space that [Suncorp and IAG] can have those 10 per cent-plus premium rises."

He does not anticipate large premium increases in the automotive industry in the next 12 months, but says price rises for home and contents insurance have “some way to run".

The insurer, whose main brand is Budget Direct, has no plans to aggressively expand into home and contents given the expense of acquiring new customers, and Mr Weston points to partnership arrangements between insurers and retailers as the company’s biggest source of growth.

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Australian insurers are hoping to replicate the success of European retailers, in particular Tesco in the United Kingdom, which have expanded into insurance and other financial services products.

Mr Weston says despite recent tie-ups – Myer with QBE and Australia Post with AGIC – partnership opportunities are still in their infancy.

“The UK post office sells one in five car insurance policies. There’s definitely the potential for that to happen here," he says, declining to detail the volume of policies sold through the company’s partnership with Australia Post.

The AGIC chief plays down IAG and Suncorp’s push into the online market via internet-only brands The Buzz and Bingle, which is seen as an attempt to compete head on with offshore insurers. “They don’t show up on our radar as a competitor."

He says online brands threaten the profitability of incumbents’ existing business through cannibalisation.

He disputes claims by the big insurers that their performance in handling mass claims after major adverse weather events is difficult for offshore discount providers to match.

“Give me a break," he says, pointing to news reports that motorists insured by Suncorp had to wait hours in queues to be assessed following the Perth storms in April.

At the time, Suncorp said the assessment process was designed to get motorists back on the road as quickly as possible.

Mr Weston says he doubts the Australian Competition and Consumer Commission will let IAG or Suncorp merge with a smaller player given their market dominance.

He adds that aggregators, through which Budget Direct markets insurance, will struggle to gain a foothold in the local market given incumbents’ reluctance to join comparison sites.

QBE is scheduled to report its half-year results on Thursday. IAG and Suncorp are due to report full-year earnings the following week.

Mr Weston says AGIC’s loss ratio, which at 50 is about 20 per cent lower than the industry average, lets it price policies competitively.

Aggregators have reshaped the UK insurance industry by allowing people to more easily compare prices, thereby pushing down premiums.